Russian Central Banker Slams Vast Criminal Cash Exports

Russia's central bank chief said
nearly $50 billion, or 2.5 percent of the national income, had
been sent abroad illegally in 2012, much of it controlled by a
single group of people - whom he did not identify.

Russia's central bank chief said
nearly $50 billion, or 2.5 percent of the national income, had
been sent abroad illegally in 2012, much of it controlled by a
single group of people - whom he did not identify.

Wednesday's findings by the Bank of Russia, one of the
country's most respected institutions, amounted to an indictment
of lawlessness and corruption in the system of "Kremlin
capitalism" that has taken hold under President Vladimir Putin.

They also sent a parting shot from the soft-spoken Sergei
Ignatyev, who retires as chairman in June after 11 years largely
free of controversy. A successor has yet to be named.

"You get the impression that they are all controlled by one
well organized group of people," Ignatyev, 65, told Vedomosti
newspaper in a front-page interview after the study found that
more than half the flows involved firms linked to each other.

"With a serious concentration of efforts by law enforcement
agencies, I think it is possible to find these people."

He called for urgent legislation what would allow banks to
close down accounts being used for dubious purposes and also
urged lawmakers to tighten rules for setting up companies.

Ignatyev was citing the findings of a study that the bank
said it would publish later on Wednesday. By lunchtime in
Moscow, only Ignatyev's interview had been posted on the central
bank's web site (), not the study itself.

In a further indication of its sensitivity, Ignatyev did not
touch on the subject of illegal capital flight in testimony on
Wednesday morning to the Federation Council, the upper house of
parliament. Nor was he asked about it by lawmakers.

Asked by a reporter before his testimony to identify the
"well-organized group" he mentioned in the interview was making
half the illegal transfers abroad, Ignatyev declined comment and
left the upper house without speaking to journalists.

The Kremlin also did not comment, beyond saying that it
thought the figures were exaggerated, and there was no word from
the wealthy businessmen known as "oligarchs" who struck it rich
after the Soviet Union collapsed in 1991.

Meanwhile, in the State Duma lower house, the former head of
the chamber's ethics committee resigned his mandate after
revelations that his family owned a number of apartments in the
U.S. state of Florida.

The lawmaker, Vladimir Pekhtin, has denied wrongdoing two
months after Putin announced a drive to "de-offshore" the
economy by imposing restrictions by officials on investing
abroad.

DRUG MONEY, KICKBACKS

The central bank study found that $49 billion, or around 2.5
percent of gross domestic product, was spirited illegally out of
Russia last year.

"It can be payment for narcotics ... 'grey' imports ...
bribes and kickbacks to officials (and) managers making
large-scale purchases," Ignatyev told Vedomosti. "It can be
schemes to avoid tax."

Anti-corruption activists say that capital flight can take
any number of forms, with some banks shifting money through
complex paper trails, shell companies and so-called "encashment"
schemes designed to evade regulators.

Big state enterprises in particular are involved in shifting
large sums of money abroad, sources say, while Russia's
super-rich oligarchs use offshore centres to safeguard their
businesses.

Statistics show that Cyprus is the largest source of foreign
investment into Russia. Most of that money coming from the
island is itself Russian in origin, bankers say.

The amount of dirty money flowing in and out of Russia has
more than doubled over the past eight years, robbing the country
of productive capital and driving a huge underground economy, a
recent study by a U.S. think tank found.

Global Financial Integrity, based in Washington, estimated
that an average of $62 billion in money earned from corruption,
human trafficking, arms smuggling and other illegal activities
has entered or left Russia each year since the start of 2004.

That is a 228 percent increase from the $27.06 billion in
illicit funds seen annually on average in the prior decade, the
study found.

MAGNITSKY CASE

The most high-profile recent case of suspected illegal
capital flight was investigated by investment fund lawyer Sergei
Magnitsky, who died in a Russian prison in 2009.

Magnitsky's employer, Hermitage Capital, has accused law
enforcement officials of stealing $230 million by seizing
control of its companies and fraudulently securing a tax rebate.

Investigators in Switzerland and other countries are
investigating the flows of the so-called "Magnitsky money", some
of which, Hermitage says, ended up in real estate investments in
the Gulf trading hub of Dubai.

Russian officials have denied any wrongdoing. They have
instead pressed ahead with plans to try Magnitsky posthumously
for tax evasion, and to prosecute Hermitage founder Bill
Browder, a British citizen, in absentia.

Of the total illegal outflows in 2012, the central bank
estimated that $14 billion was related to trade operations, with
the remainder made up of $35.1 billion in "dubious" capital
transfers.

The latter represents 60 percent of last year's officially
reported total net capital outflow of $56.8 billion, according
to the study.

The Kremlin "took note" of the findings, but made clear that
it did not share the central bank's views, pointing to other
officially backed research that concluded that illegal capital
flight from Russia is far lower.

The research, by a state-backed investment fund, concludes
that the figure for capital outflows is "highly exaggerated",
Putin's spokesman, Dmitry Peskov, said on Wednesday.

"We take all points of view into account, but our position
is that this is a natural process," Peskov said. "Illegal
outflows, if we are talking about the laundering of dirty money,
are a matter for law enforcement agencies."